When preparing my Sinergija12 code examples I ran into an interesting problem. Windows Azure local development storage hangs for about minute and gives StorageServerException stating that there was problem in web server. A little surf in search engines gave me solution.

For me this error happened with default settings of development storage. Everything started working normally when I created storage database to my local SQL Server. MSDN library has good article about steps to take:How to Configure SQL Server for the Storage Emulator:

Click Start, point to All Programs, and then click Windows Azure SDK.

Right-click Windows Azure SDK Command Prompt, and then click Run as administrator.

In the Windows Azure SDK Command Prompt window, type the following command: DSInit /sqlInstance:<SQLServerInstance> Where <SQLServerInstance> is the name of the SQL Server instance.

Before running these commands shut down Storage Emulator. You can run it when you are done on Azure command-line.